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Public Announcement 2004 – 83 Strategic partnership in fertilizer (presentation)

Please find attached for immediate release the presentation regarding AWB’s announcement of a strategic partnership in the fertiliser industry.

Michael Thomas GM, Corporate Thursday, 9 December 2004

AWB announces a strategic partnership in fertiliser with Futuris & WMC 9 December 2004

Executive Summary •

Fertiliser is a critical input in Australian agriculture with farmers spending over A$2 billion each year. For grain farmers it represents a significant 15% of their total cash costs.

•

To enable AWB to execute its strategy within the fertiliser industry it must play a lead role in the key segments of the value chain.

•

A joint venture company, ELF Australia Pty Limited (ELF), has been formed by Landmark (an AWB Company) and Elders, to acquire a 66.7 per cent share of WMC’s wholly owned subsidiary company, Hi-Fert.

•

The purpose of this joint venture is to increase competition and drive cost efficiencies in the supply chain.

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Executive Summary (cont) •

Other major elements of the agreement include: – ELF to become the fertiliser buying arm for all Landmark and Elders rural retail distribution outlets on the east coast of Australia; – ELF to have an agreement to source a significant proportion of its fertiliser demand from Hi-Fert on an annual basis; with – the remainder of ELF’s supply needs to be sourced in the open market.

•

The joint venture is only focussed on the east coast (including South Australia) and will not alter the competitive landscape at the retail level.

•

The transaction will not impact the Western Australian market where supply contracts will remain unaltered.

Strategic Rationale The transaction allows AWB through its subsidiary Landmark, to enhance its position as the leader in Australian rural services. Enhance Growth

• •

Provides a platform to participate in fertiliser industry rationalisation Facilitates continued high growth of retail fertiliser by ensuring price competitiveness

Minimise Risk

• •

Low cost entry point to the distribution segment Investment in an existing distributor delivers a management team, supplier relationships and procurement systems in addition to the storage and handling infrastructure AWB’s price risk management expertise may allow product import margins to be enhanced

•

Maximise leverage

• •

Leverages Landmark’s fertiliser customer relationships to provide critical mass in the distribution segment Provides an opportunity for AWB to leverage its core competencies of risk management and chartering

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Overview of Australian Fertiliser Industry VALUE CHAIN

Producer

QFO

PRODUCERS

DISTRIBUTORS

RETAILERS

FOB Buying

IMC

Hi-Fert1 Summit

Freight

Load

Cargill

Discharge

Agruim

Store

Distribute

PCS

CSBP1 IncitecPivot1 Direct

Elders

RuralCo

Farmer

(High capital)

SouthFert

WA

Landmark

Retail

(Commodity importers)

GrainCorp Independents

Note 1. Distributors are also aligned or integrated with domestic production facilities

INDUSTRY ANALYSIS Industry Overview •

The total market for fertiliser in Australia is estimated at 5.1 million tonnes per annum or A$2 billion per annum. The major fertilisers used in crop farming are as follows: – – – – – – –

Urea (Nitrogen); Sulfate of Ammonia (Nitrogen, Sulphur) Mono-Ammonium Phosphate (MAP) (Nitrogen, Phosphorus); Di-Ammonium Phosphate (DAP) (Nitrogen; Phosphorus); Single Superphosphate (SSP) (Phosphorus, Sulphur); Potassium based fertilisers (Potassium) (MoP, SoP, NoP); and Blends of the above.

•

Fertilisers are used to supply the crop / pasture requirements for nitrogen, phosphorus, potassium and sulphur and various micro-nutrients.

•

From a crop / pasture nutrient perspective, the plant is indifferent to the fertiliser form of the nutrient supplied and one nitrogen fertiliser is, to a large extent, substitutable for other nitrogen fertilisers.

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3

INDUSTRY ANALYSIS Total Demand By Nutrient Type: 1990-2003 (‘000 Tonnes Of Nutrient) CAGR: 1990-2003 (%) 2,500

Potassium • MOP/SOP

2.4

Phosphate • SSP • TSP • MAP/DAP

6.0

Nitrogen • Urea • Ammonia

9.6

2,000

1,500

1,000

500

7.6 2002/03 f

2001/02 e

2000/01 e

1999/00

1998/99

1997/98

1996/97

1995/96

1994/95

1993/94

1992/93

1991/92

1990/91

1989/90

0

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INDUSTRY ANALYSIS • • • •

Australia has shown relatively strong nutrient demand growth (7.6% CAGR), with the majority coming from urea and MAP/DAP. Overall demand is expected to grow in line with expenditure at around 4-6.5% pa: Broadacre will remain the largest consumer of fertiliser with flat demand; and Horticulture and Dairy will increase their share of fertiliser consumption. %

100

Pasture 4% Pasture 11%

90

Horticulture ( 24%

80

70

Cotton ( 22%

Pasture 6%

Pasture 11%

Horticulture 4% Dairy 3% Sugar ( 44%

)

)

Horticulture ( 14%

Horticulture 5% Dairy 2% )

) Dairy 2% Dairy ( ) 28%

60 Pasture 4%

50 Cotton 1%

40 Broadacre ( 60%

)

Horticulture ( 27%

Broadacre ( 87%

) Broadacre ( 70%

30 Dairy 4%

Broadacre ( 45%

20 Cotton ( 14%

10

)

)

Market Growth → ↑ ↓

)

)

stable increasing decreasing

Broadacre 7%

0 NSW

QLD

SA

VIC

WA

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4

INDUSTRY ANALYSIS •

From a geographic perspective, the east coast market is estimated at 3.5 million tonnes with NSW and Victoria accounting for over 60 percent of the market.

•

The key commodity products of SSP, MAP, DAP and Urea account for 2.5 million tonnes, or over 70 percent of the east coast market. D e m a n d B y P ro d u c t B y S ta te : 2 0 0 1 (‘0 0 0 T o n n e s ) P ro d u ct S ta te S S P /T S P

D A P /M A P

P o tas h

A m m o n ia

U rea

B le n d s

O th e rs

T o tal

QLD

16

36

12

41

338

145

14

6 02

NSW

3 86

30 7

4

1 18

306

174

4

1 ,3 00

V IC

3 86

15 9

19

9

120

352

10

1 ,0 55

SA

1 29

20 6

5

13

115

105

3

5 76

TAS

1 06

5

24

1

14

36

0

1 85

WA

2 98

47 6

11

30

266

242

7

1 ,3 30

T o ta l

1 ,3 21

1,18 9

75

2 12

1 ,1 5 9

1 ,0 5 4

38

5 ,0 49

G ro w th 1 98 8 – 9 8 ( % )

(4.6 )

1 0 .8

2 .8

7 .0

1 2.1

5 .4

5.4

6 .4

A vg P ric e ($ /t)

258

418

4 41

6 34

3 90

37 8

378

3 70

T o ta l ($ m )

341

497

33

1 35

4 52

39 8

14

1 ,8 70

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Transaction Details Key Highlights: •

Elders and Landmark are 50/50 owners in ELF Australia Pty Ltd (ELF), a newly constituted company which will have 4 directors, 2 from each of the parent companies.

•

ELF will have 2 roles: – Holding a 66.7% interest in Hi-Fert; and – Being responsible for negotiating the supply of all fertiliser requirements to the retailers, Elders and Landmark on the east coast (including SA)

•

Hi-Fert will be owned 66.7% by ELF and 33.3% by WMC and will supply a significant proportion of fertiliser to ELF.

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Transaction Structure The Structure of the transaction agreed between AWB, Futuris and WMC to be as follows:

Elders

Landmark Ownership

50%

50%

ELF (Buys all Fert requirements for Elders & Landmark)

Negotiate supply agreement for Elders and Landmark

Other IPL (and other suppliers) Suppliers

66.7% 67% ownership ownership of of Hi-Fert and HiFert Summit EC

Hi-Fert

K Summit EC

WMC 33%33.3% ownership ownership of Hi-Fert of Hi-Fert and Summit EC

Hi-Fert Organisational Structure General Manager 2 employees

Network Operations 22 employees

Distribution Operations 64 Permanent, 23 Casual

Commercial & Strategy 8 employees

EH&S 2 employees

Corporate Support

• •

•

Hi-Fert has a total of 98 permanent staff. Hi-Fert’s network and distribution operations staff are located at the respective plants, providing shipping and logistics support, whilst management, commercial and administrative staff are located in Hi-Fert’s Melbourne head office. The General Manager is supported by a senior management team of four, with the functions of HR, legal and management accounting being currently undertaken by WMC.

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Transaction overview • Purchase based on net asset value. • EPS impact in year 1 is positive. • No impact on Credit Rating.

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